YiChang HEC ChangJiang Pharmaceutical Co., Ltd. (HKG:1558) shares have had a really impressive month, gaining 37% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 39%.

In spite of the firm bounce in price, there still wouldn't be many who think YiChang HEC ChangJiang Pharmaceutical's price-to-sales (or "P/S") ratio of 1.6x is worth a mention when the median P/S in Hong Kong's Pharmaceuticals industry is similar at about 1.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does YiChang HEC ChangJiang Pharmaceutical's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, YiChang HEC ChangJiang Pharmaceutical has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

How Is YiChang HEC ChangJiang Pharmaceutical's Revenue Growth Trending?

In order to justify its P/S ratio, YiChang HEC ChangJiang Pharmaceutical would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 182% last year. As a result, it also grew revenue by 8.1% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 15% over the next year. That's shaping up to be similar to the 14% growth forecast for the broader industry.

In light of this, it's understandable that YiChang HEC ChangJiang Pharmaceutical's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Its shares have lifted substantially and now YiChang HEC ChangJiang Pharmaceutical's P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've seen that YiChang HEC ChangJiang Pharmaceutical maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for YiChang HEC ChangJiang Pharmaceutical with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of YiChang HEC ChangJiang Pharmaceutical's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.